The New 30% Tax Ruling: Major Changes Introduced

One of the most popular tax facilities in the Netherlands in recent years is the 30% ruling, which allows foreign employees to receive 30% of their annual gross salary tax-free as a compensation for extraterritorial costs. If the employee’s working conditions meet the ruling’s requirements (salary, residence, distance, etc.), then the 30% facility may be granted up to a maximum duration of 5 years. From our experience dealing with international clients, the ruling’s tax incentive has proven to be a magnet for highly skilled migrants coming to the Netherlands, and is often the deciding factor for their relocation.
 
This however is set to change. Pursuant to two amendments introduced by the Dutch Lower House, the 30% ruling will be scaled back and capped starting 1 January 2024.
 
From the 30% Ruling to the 10% Ruling
 
The 30% ruling is granted for a maximum if 5 years, or 60 months. Pursuant to the first amendment, the 30% tax-free allowance will only be provided for the first term period of 20 months, after which it will be reduced to 20% for the next period of 20 months and, for the final 20 months of the ruling’s term, the percentage will be reduced further to 10%.
 
The adopted amendment provides for a transitional arrangement for employees who, in the last period of 2023, received compensation for which they had a 30%-ruling. The scaling back therefore does not apply to employees who use the 30%-ruling before 1 January 2024.

Introducing a Cap the 30% Ruling

The second amendment provides a cap to the 30% ruling, resulting in a maximum amount of tax-free benefit. As of January 1, 2024, the amount will be capped, which means that the ruling may not be applied to employment income exceeding the “WNT-norm” or “Balkenende-norm”. The WNT-norm for 2023 is 223.000 euros, resulting in a maximum tax-free allowance of 66.900 euros. If you have employees with a salary that exceeds the Balkenende norm, the capping measure will result in the amount that can be paid tax-free being reduced.

How This Effects Your Business
 
The new legislation introduces some of the biggest changes to the 30% ruling since the ruling’s introduction back in 1964. The reduction of the tax-free percentage from 30% to 10% is expected to have an impact on the attraction of foreign employees, as they now have less of a financial incentive to come to the Netherlands. In addition, for each employee using a 30%-ruling, the percentage of the exemption will have to be changed every 20 months. This change will also have to be implemented in the payroll system, increasing the overall administrative burden.
 
Additionally, the introduction of a cap may cause many employees to reconsider applying to the 30% in the first place. As this cap only covers the 30% facility but is not applicable to the reimbursement of actual extraterritorial costs, it may be more beneficial to reimburse the actual costs instead of applying the 30% ruling.